March 01, 2014
Yew Kong Lye
You have made a decision to buy an investment property and suddenly it becomes very daunting. There seems to be a million and one things to consider and learn, how much equity can I use? what is negative gearing? what are the tax benefits of owning an investment property? what is capital gains tax? etc, etc. Suddenly it all becomes too overwhelming and the idea will be relegated to the too hard basket.
Owning an investment property, if properly done, is richly rewarding. It will look after you in future and the process can be very enjoyable and need not be stressful. However, it needs to be understood and properly planned. In my journey, I’ve found the following to be amongst the most important considerations:
I am of the persuasion that nobody can manage your money better than yourself. Sure, it’s always advisable to seek advice and work with experts in a team but, ultimately the decision has to come from you. You can’t make a good decision until you are properly educated and understand what is involved.
Thousands of your hard earned dollars are involved in property investment and you owe it to yourself to be properly educated so that you can go in with your eyes wide open. That way you can’t blame anyone if things do go wrong and you can take full responsibility for the decisions that you make.
Investing in property is relatively easy to learn and there are plenty of literature and educators out there. Read and learn from people who have gone out there and done it, not from someone just pontificating in a classroom like a college professor. Amongst the best educators that I have found are Dolf De Roos (property advisor to Robert Kiyosaki) and our local Aussie, Steve McKnight. Check around and there are plenty of free and good property seminars run by credible people who are out trying to educate the public or their clients.
DO YOUR RESEARCH
There’s never enough research but, don't analyse till you paralyse. Before you embark on buying your first investment property, know the important pieces in the jig saw of the game. The key elements of the plan are: ·
- The nuts and bolts of property investment ·
- The principles and legal framework ·
- Your team
Do the necessary research to understand what is involved i.e the nuts and bolts of the game-the rules, finance, tax, law, etc, etc. There are various rules/ regulation/ law relating to investing in real estate. Research and understand them well. Understand that you can’t do this alone and find out who can contribute and add value to your journey.
Certainly, a good mortgage broker and financial planner is a good starting point. Solicitors, tax consultants, valuers, property researchers, real estate agents are people who can help you. Research them properly and decide who can help you best and be the best fit for your team. Interview them like you are hiring an employee and don’t be afraid to ask the hard questions.
KNOW YOUR NUMBERS
It’s amazing how many people don’t know exactly how much they earn. When you decide that you want to invest in property, it is critical that you have a clear picture of numbers that matters. One of the most important number that you need to know when you’re borrowing to invest is, your income. That is because that’s what the banks are interested in to gauge your ability to repay the loan. Other important numbers to know would include:
- How much do I spend?·
- How much can I borrow? ·
- How much do I owe? ·
- How much do I have in my super? ·
- What assets do I have? ·
- How much tax do I pay?
HOW MUCH CAN I BORROW TO INVEST?
The deposit for the purchase of a property can either be funded by savings or the equity that you have accumulated in either your home or another investment property. Generally, the longer you have saved and the longer you’ve owned a property, is what will determine the size or your deposit or equity. That in turn will determine the number of properties that you’re able to buy.
A mortgage broker will be to work your borrowing capacity in a few minutes once you’ve providing him with the necessary numbers (that’s why you need to know your numbers) A person’s borrowing capacity is directly proportional to the size of his income (includes potential rental income) and the amount of equity or savings that the person has.
LOCATION, LOCATION, LOCATION
You’ve heard this over and over, ad nauseam, in the field of property investment and I’m here to say it’s like one of those natural laws that you can’t refute. Rule number 1 in property investment is to locate your property well. Rule number 2 is to follow rule number 1.
So how do you locate your property well? Suffice to say for now, that there are a few key drivers that determine good location of properties, one of which is the economy of the location and its implication on jobs
Just bear in mind that, if there’s no capital growth in your investment property due to poor location, there is no wealth creation. Locating your property well is a topic of such widespread interest that I will devote my next article entirely on the subject.
Our well-being and lifestyle in the future and into retirement depends on what actions we take today. It is increasingly evident that the Government will not provide and our super will be inadequate to fund our retirement. Building a well-planned property portfolio could be the answer to a brighter future, you just need to make a start. “The journey of a thousand miles begins with one step” – LaoTzu. If you’re ready to take that first step, call 0413 871 888